ING Groep NV, the largest Dutch financial-services company, will keep lending to the shipping industry as some European banks cut their portfolios or refrain from new lending amid the maritime industry’s crisis.
ING plans to keep its 6 billion-euro ($7.9 billion) shipping portfolio “relatively flat” this year, making new loans “equivalent in size to debt run-off with some allowances for new building commitments,” Rory Hussey, managing director at ING’s shipping finance division, said in a phone interview from London on April 27.
ING is one of a dwindling number of European lenders making loans to an industry hurt by an overcapacity of vessels, slumping freight rates and soaring fuel costs. Banks are also scaling back or exiting ship finance because of stricter capital rules for lenders or as a condition for approval of government bailouts they got during the global financial crisis. That has pushed up the margins on maritime industry loans.
“We have room for more lending and are open for new business, though not as wide open as we were at the beginning of last year,” Hussey said. “The net margins are at this point slightly higher than they were in 2006 and 2007 and the net returns are better. It is still worth making shipping loans.”
The crisis in the shipping industry led to the bankruptcy filings last year of General Maritime Corp., the second-largest U.S. owner of oil tankers, and Korea Line Corp., Korea’s second-biggest operator of dry-bulk ships. Many smaller and middle-sized shipping companies in Germany, home to the world’s third-largest water-transport fleet, are struggling to service their debt and may face insolvency, according to the VDR shipping association, a Hamburg-based industry group that represents more than 200 shipping lines.
‘In the Doldrums’
Container lines A.P. Moeller-Maersk A/S, France’s CMA CGM SA and Hapag-Lloyd AG posted losses last year because of higher fuel costs and falling freight rates, caused by an oversupply of vessels and a price war on routes between Asia and Europe. Companies such as Maersk and Hamburg-based Hapag-Lloyd have since raised rates to try to restore profit.
“It’s difficult to be optimistic about any particular segment, as tankers, dry bulk and containers all look weak at the moment,” Hussey said. “Dry bulk will stay in the doldrums though 2013 and while the container industry is out of the lull already as rates have been increased, it all depends on if they will stick. There are still also a lot of big vessels that will be delivered, and those have to get employed somehow.”
ING is the world’s 24th-largest shipping bank, according to Athens-based Petrofin SA, a vessel finance consultant.
As a result of the crisis, banks’ credit losses have increased. Net shipping loan losses at Nordea Bank AB, the world’s No. 4 shipping lender, tripled to 135 million euros ($179 million) last year because of “weak market conditions” and “a general decline in vessel values,” it said Jan. 24. Loan losses more than quadrupled to 60 million euros in the three months through March, from 14 million euros in the first quarter of 2011.
Shipping loan losses and provisions among banks will probably rise this year, Christian K. Murach, head of transportation finance at KfW IPEX-Bank, the No. 7 lender to the industry, said on April 16.
Thirteen of the world’s 19 largest shipping banks stopped new loans to the industry amid an “extreme” vessel surplus that cut cash flows and led to vessel seizures, Dagfinn Lunde, a member of DVB Bank SE’s managing board, said on March 9.
While HSH Nordbank AG, the world’s No. 1 shipping financier, sees potential for making new loans using cash from repaid credit, it and lenders such as Commerzbank AG are cutting the total size of their ship-lending portfolios. Still, there are banks that see opportunities, said Hussey.
“While I don’t think that banks who haven’t been involved will say, ‘Goodie, goodie, let’s get into ship finance,’ you have seen examples of banks who have not been so involved before increasing their lending” to the industry, Hussey said.
U.S. banks such as Citigroup Inc. and Bank of America Corp. have become “a lot more active,” Hussey said, adding they are not as constrained by the “bloody expensive” cost of funding in U.S. dollars as European lenders. Commonwealth Bank of Australia and Chinese banks also increased their focus on the shipping industry, said Hussey. Chinese lenders mainly assist Chinese firms and won’t be a replacement for European banks exiting or scaling back ship finance, he said.
The European banks that still lend to the shipping industry are “not going to be as open as they were,” meaning they won’t “be doing any tremendous amounts of new lending this year,” Hussey said. The declining amount of ship finance available is creating difficulties for some shipping companies, he said.
“We have a two-tier market now,” said Hussey. “Shipping banks that are open for business are all looking at the same names. There is a hierarchy of names that all go after, and then there is the rest, which have no access to the bond market and to which banks are not interested in lending,” Hussey said.